Investing in Memphis - tips for investors both near and far

[Jack Inman]

I'd like to share a few tips that investors can use to help in the initial analysis stage of investing. We all know that the trick to any investing is to buy low and sell high; it's the back bone of every good investment. Now, for the seasoned investor this might be a piece of cake, but for newbies and/or people who are investing abroad, this is one of the most daunting aspects of real estate investing because markets are so localized and unique. So, here are a few websites and tips to help form a general idea of a particular property's market value and its investment value.

Shelby County Assessors Website - http://www.assessor.shelby.tn.us/content.aspx

^ This website will give you the assessor's opinion of what the property is worth and it also provides a tax calculator so you can calculate the city and county taxes. The assessor's property value has been fairly accurate in most properties that I've dealt with. However, it uses the law of averages, so if your property is in better (or worse) shape than the surrounding houses then the figure will be less accurate. 

Shelby County Register -  https://register.shelby.tn.us/index.php

^ This website is where all deeds and mortgages are stored for Shelby county. Simply select 'address' under 'search type' and you're ready to look up a property. This will show who has owned the property, how much they paid for it, their mortgage amount, and often you can deduce whether the owner is an owner/occupant or not. 

These two websites are great for digging up information on properties and are always my go-to websites when I am building a property analysis spread sheet. Other calculations I always include are:

Vacancy rate - 8% * source below

Repairs - I usually budget around $750-1,000 per year (keep in mind you can also use the renter's deposit to complete repairs if they caused the damage, just keep document things properly) 

Capital expenditure - Calculate the replacement costs of major items (roof, flooring, HVAC, etc.) and divide them by their estimated remaining lifetime. 

Property MGMT fee - 8-10% (even if you self-manage you should set a budget, maybe 4%)

Insurance - I pay about $600 per property for my insurance, yours may vary. 

Property tax - Assessor's website

Debt service - principle and interest on mortgage - and don't forget those pesky discount points! 

You can use these figures and create a fairly accurate 'going in cap rate,' and you should also look up how to calculate the 'Internal Rate of Return' or 'IRR.' The IRR will tell you the estimated compounded rate of return of your investment; very useful when comparing real estate to other investments such as stock market gains. The IRR is a little more complicated to calculate and to do it right you have to factor in tax items such as depreciation, and capital gains taxes (unless you are planning on doing a 1031) and also the dreaded depreciation recapture tax at the point of sale.

I highly recommend you do all of this, or hire a Realtor who can do it for ;) The goal of investment analysis is to remove as many variables as possible before you plop down your hard earned cash. Memphis is a great city and I hope you choose to invest here, also the eviction laws here favor the landlord, a major major plus. 

Best of luck!

Jack Inman

Source for vacancy rate of Memphis - https://www.huduser.gov/portal/publications/pdf/Me... )